Bernanke sees improving economy throughout 2010

WASHINGTON (MarketWatch) -- Federal Reserve Chairman Ben Bernanke was notably more upbeat Wednesday about the economic outlook than he has been at any time since the financial crisis began in the summer of 2007.

In a speech in Dallas, Bernanke said that while the economy was far from out of the woods, his "best guess" was that the economic conditions would continue to improve this year, and growth would be strong enough to slowly reduce the unemployment rate.

"If economic conditions improve, as I expect, we should see increased optimism among consumers and greater willingness on the part of banks to lend, which in turn should aid the recovery," Bernanke said.

Bernanke said inflation appears to be well controlled in the near term.

"Productivity improvements have helped firms control costs and little pricing power is evident," Bernanke said.

He cited two areas of concern: continued weak bank lending and no sign of a sustained recovery in the housing market.

Bernanke did not repeat the Fed's pledge to maintain short-term interest rates at exceptionally low levels for an "extended period."

He simply said that growth this year would be supported by the Fed's stimulative monetary policy.

In a separate speech on Wednesday, William Dudley, the president of the New York Federal Reserve Bank repeated that interest rates need to stay low for an extended period.

Minutes of the Fed's March meeting released on Tuesday showed that the central bankers want to rework the market's interpretation of the "extended period" phrase. While Fed watchers had thought the phrase roughly translated into six months of steady rates, Fed officials said the extended period statement was actually not dependent "on the passage of any fixed period of calendar time". Extended period driven by data, Fed says

This has left Fed watchers scratching their heads. Some said the language will disappear soon from the Fed's policy statement, while others said it might stay around longer, but mean less.

Bernanke called on fiscal policy makers to develop a credible deficit-cutting program.

Near-term action on the deficit was "neither practical nor advisable" because the economy continues to run well below potential, Bernanke said.

But a plan could lead to lower interest rates and more rapid growth in the near term.

The country faces a stark choice, Bernanke said.

"To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above," Bernanke said.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.